Breaking out sales and COGS into separate categories aids in gross profit margin analysis, allowing for better profitability tracking and informed decision-making.
The advantage of breaking out sales and cost of goods sold (COGS)/sales into separate categories instead of one category enables the preparation and analysis of the gross profit margin.
By separately categorizing these, a business can easily calculate the gross profit by subtracting COGS from sales.
This allows businesses to analyze profitability and make strategic decisions regarding pricing, cost control, and product line management.
Moreover, investors and managers look at gross profit margins to understand how efficiently a company is producing and selling its goods.
It is not necessarily about maximizing gross profit immediately or showing a reasonable return on investment in this context but rather about having the transparency to track operational efficiency and to make informed decisions.